Comment: The RSI went as high as 71 last week (70 is overbought) before plunging to 53.91 on Friday. SPX is currently resting at 2800, which is a major support level. It will be interesting to see if the bulls can hold 2800.

Fed Chairman Powell went beyond the usual dovishness and said that they would do anything to keep interest rates low and make Wall Street happy (my words). On Thursday, the indexes rallied on his kind words. On Friday, the indexes plunged.

Behind the scenes, institutional investors flocked to bonds for protection after U.S. bond yields inverted, a signal that many believe says a recession is near. It’s a warning sign, and although not perfect, it has signaled recessions in the past (the tricky part is the timing, as always). The inverted bond yield was enough to cause panic buying in bonds. Beginning now, be on the lookout for clues of a recession including job losses, poor housing sales, poor auto sales, and store closings.

If we get a recession with interest rates already low and debt so high, the Fed will really be in a quandary. And believe me, with stock prices at overbought levels, we could switch from buying on the dip to selling at any price. If you have huge gains from the stock market, it’s not a bad idea to take some money off the table, a decision only you can make.

Bottom line: All we can do is see if the bears take control again (they haven’t since December) or if the bulls can run this market even higher. No one, and I mean no one, can confidently predict what will happen this week.

Comment: The indexes had a slow but steady upward climb last week. It drove most traders crazy but the low volatility and lack of institutional buying keeps buy-and-hold investors calm. No one knows how long this manipulated market will keep going higher, but one day volatility will return again. The VIX is under 13 again, which reflects complacency and calmness. This can’t last forever.

Meanwhile, the Fed meets this week, and Powell will likely go out of his way to keep the good times coming. I doubt he’ll say anything to upset the market. Nevertheless, in the past, volatility has increased right after the Fed minutes are released on Wednesday.

After last week’s slow rally, the S&P 500 is overbought again, so a pullback would not be surprising. That being said, the algos are going to run the market as high as they can until something breaks.

Bottom line: It’s all about the Fed this week. Let’s see if volatility returns to the market, and whether Powell says anything besides, “I’ll do whatever it takes to keep Wall Street happy, and that means I will keep interest rates as low as possible as long as possible because I don’t want the stock market to plunge again.” (my quote but you get the idea).

Advertising Note: My bestselling options book, Understanding Options 2E, which is written for beginners, has dropped by $4 in the last few days on Amazon (now $16.71). I’m not in control of the prices but I can say this is a rare sale, and shouldn’t last long. Here’s the link to the book: https://amzn.to/2TIWRtk

Comment: Last week the market finally hit resistance and pulled back. On Friday, the jobs numbers (20,000 new jobs vs 180,000 expected) was horrendous. In a “normal” market, the indexes would have plunged. Although there was a minor pullback at the Friday open, the indexes ended flat thanks to help from the algos, who once again saved the day. (It’s not easy going short in this environment!). Nevertheless, it was a negative week for the indexes.

This week should be interesting. On Sunday night, the indexes are slightly lower. Nevertheless, we will have to see if SPX (S&P 500) can pick itself from the basement (it has retreated back to it’s 200-day moving average) and rally in spite of all of the bad news swirling around.

On the other hand, this market is still overbought so a major plunge in the indexes would not be surprising. Because the Fed, the White House, and the go-go algos all want the market to go higher, it’s not easy to short aggressively. However, if the indexes fail to move above and stay above its 200-day moving average, a pullback is very possible, even a severe one.

Bottom line: Keep your powder dry as this market could go in either direction. Buyers are still on the sidelines (except for the algos). This standoff will be resolved one way or another, and until then, trade cautiously and take profits quickly.

Comment: MACD is giving us a signal that the S&P 500 is getting tired and exhausted even as it climbed above SPX 2800. Futures are higher on Sunday night so it will be interesting to see how much higher (or lower) it can go. There are signs of exhaustion but it’s better to wait for confirmation. Volume has been low (buyers appear to be on strike), and the market remains overbought. One of these days there is going to be a major pullback, so be prepared. Enjoy the party while it lasts. It appears as if everyone has the same idea: wait for a major pullback and buy on the dip.

Bottom line: For the second or third week in a row: Wait and see what the market will do. The big question is how high it can go before reversing.

Categories

Meta

The information being provided is for informational purposes only and is not intended as a recommendation, an offer, or solicitation for the purchase or sale of any security referenced herein, or investment advice. It is provided to you on the condition that it will not be used to form the primary basis for any investment decision.

Contact Me

If you have questions or comments about any of my books, please fill out this form. I always like to hear from you, and will respond to every email.